When Being Rich Makes Us Poor, People Should Occupy Wall Street

The Very Serious People in Washington are busy trying to find creative ways to cut Social Security and Medicare and take other benefits from middle-class and moderate-income families. The refrain here is that we just can’t afford this level of generosity any more.

There are two parts of this story that should drive the rest of us crazy. And it is difficult to determine which one is the more infuriating.

The first is that we know that many people in this country are fabulously rich. And as Elizabeth Warren beautifully reminded us, none of them did it on their own. But Professor Warren is actually far too generous in her account.

While some number of the wealthy may have succeeded by working hard and being smart or creative, many of the very wealthy got their money directly or indirectly through the big hand of the government tilting the playing field in their direction. Their hard work involved rigging the rules to ensure that they ended up on top.

Nowhere is this better seen than on Wall Street, which is chock full of multi-millionaires and billionaires who got to the top by taking advantage of items like “too-big-to-fail insurance” for their banks, gambling with government-insured deposits, ripping off state and local governments on pension management fees, and of course the trillion dollars in bailout bucks given at interest rates that were way below market levels. These people know the role of government very well, even if they pretend this is all about a free market.

But the banks are not the only ones who rig the rules. The drug companies profit enormously from government-granted patent monopolies. Drugs are generally cheap, that is why it is possible to buy hundreds of generic drugs for $5 or $6 per prescription at chain drug stores. Drug companies are able to charge hundreds or even thousands of dollars for prescriptions because they have patent protection. As a result we spend close to $300 billion (at $1,000 per person) a year for drugs that would cost around $30 billion a year in a free market.

The government rigs the deck for the rich and powerful in other ways as well. Under the current enforcement pattern in labor law, the government comes down like a ton of bricks on any union that breaks the rules – for example by having an unlawful strike. By contrast, companies get away with a slap on the wrist for even the most flagrant violations of labor law.

Our trade policy was designed to put downward pressure on wages for the bulk of the country’s workforce by putting them in direct competition with low-paid workers in the developing world. This effect is exacerbated by the over-valued dollar. Meanwhile, those in relatively privileged professions, like doctors and lawyers, remain largely protected from international competition.

The list of ways in which the wealthy have structured the rules to ensure that they stay rich and get richer is lengthy. But the fact that the Very Serious People are looking to cut Social Security for the elderly and Medicaid for the unemployed at a time when Countrywide’s Angelo Mozilo and Citigroup’s Robert Rubin are still immensely rich is only the first reason that the public should be furious at those in power.

The second is the cause of the current downturn. The reason that we have 26 million people unemployed, underemployed or out of the work force altogether is not that we are poor, but rather that we are rich. The immediate problem facing our economy is not one of too few goods and resources; it is a problem of too little demand. And this is what should make the Wall Street Occupiers and everyone else absolutely furious at our leaders.

If people had more money in their pockets, then they would buy more goods and services. Companies would then hire more people to produce these goods and services and we would then have more jobs. The unemployment and poverty that the country is experiencing today is overwhelming the result of a failure of political will.

If the federal government increased spending on infrastructure, gave teens jobs cleaning up their neighborhoods, gave state and local governments the funds to keep teachers and firefighters employed and encouraged employers to shorten work hours rather than lay off workers, we could quickly get the economy back to full employment. Economists have known this story for more than 70 years, but somehow creating jobs doesn’t rank as high on the priority list in Washington as cutting Social Security and Medicare.

In short we have an economic system that, even when it is working, has been rigged to redistribute income to rich. And we have a political system that at a time of immense economic distress is more focused on undercutting the means of support for working families than fixing the economy. It is hard to understand why everyone is not occupying Wall Street.